The U.S. dollar rose toward a 16-month high against the euro on Friday after the U.S. Federal Reserve kept interest rates steady and reaffirmed its monetary tightening stance, setting up for a fourth interest rate hike this year in December.

The greenback had fallen broadly following U.S. midterm elections on Tuesday on expectations that the outcome would make further fiscal stimulus measures unlikely.

But the currency bounced back, and on Friday returned to outperforming most major currencies, underpinned by the robust U.S. economy and rising interest rates.

"We're wary of selling the dollar too soon, because the Fed is still hiking rates into a tightening labor market and trade tensions haven't gone away,' said Kit Juckes, chief FX Strategist at Societe Generale.

The Fed is widely anticipated to raise interest rates in December, with traders' expectations at 75.8 percent, compared to 71.1 percent a day earlier, according to CME Group's FedWatch tool.

Renewed strength in the dollar - which tends to be boosted by trade war tensions as it is considered a safe haven asset - is

pushing the offshore Chinese yuan towards 7 per dollar and has seen the euro slip towards $1.13.

In foreign exchange markets, investor focus is shifting back to the divergence between the monetary policies of the United States and other major economies.

In Japan, where interest rates are expected to stay extremely low, the yen is near a five-week low against the dollar, last at 113.84 yen, and has fallen 1.7 percent over the last 10 trading sessions.

The dollar index, which tracks the currency against six major peers, traded as high as 96.916 on Friday, not far from a 16-month peak of 97.2 touched on Oct. 31.

The euro last traded at $1,135, down 0.12 percent.

The single currency fell on Thursday after the European Commission forecast that the Italian economy would grow more slowly than Rome thinks in the next two years, leading to much bigger budget deficits than assumed by the government.

A standoff between the European Union and Rome over the budget deficit and concerns over the bloc's slowing economic growth have dragged on the euro, which has fallen 4.2 percent versus the dollar over the last six months.